BLOOMBERG

Moscow/New York/Chicago, 30 August

McDonalds Corp, which arrived in
Soviet-era Russia in 1990 and helped
open the communist nation to for-
eign enterprise, is now under pres-
sure to retreat.
Russianconsumer-safetyregulators
have ordered 12 of the chains restau-
rantstotemporarilyclose, includingits
highest-profilelocations, andlocalsare
increasingly turning against the US
company. While regulators have cited
violations of sanitary rules by
McDonalds, the timing and scope of
theshutdownsareseenasaresponseto
WesternsanctionsinRussia. Morethan
100restaurantsarenowbeinginspect-
ed, meaning dozens more locations
couldbeunder threat of closing.
Consumersentiment alsoischang-
ing in the nation. Many Russians are
now convinced that McDonalds sells
harmful food and deserves to be shut
down, saidYuliaBushueva, amanaging
director at investment firm Arbat
Capital. Thats a turnabout from the
chainsarrival inPushkinSquarealmost
a quarter-century ago, when it drew
longlinesandwasseenasymbol of the
nations risingprospects. That original
restaurant is currentlyshuttered.
Its been a good market for them
historically, but whenyoudobusiness
inaforeigncountrytheresgeopolitical
risk you run into, said Jack Russo, an
analyst at EdwardJones inSt Louis.
McDonalds, based in Oak Brook,
Illinois, saidyesterday that its appeal-
ing the court-ordered closing of its
restaurants, which were based on
claimsbythefederal consumeragency
knownas Rospotrebnadzor.
Fightingit
Wedonot agreewiththecourts deci-
sion,thecompanysaidonitswebsite.
We will continue taking care of our
employees andwill doour best tocon-
tinue the success of McDonalds busi-
ness in Russia.
Shares of McDonalds, which has
more than 35,600 restaurants global-
ly, fell 0.5per cent to$93.71 at theclose
in New York. The stock has declined
3.4 per cent this year.
The US and European Union
imposed sanctions against Russian
companies and officials after
President Vladimir Putin annexed
Crimeaearlier this year, escalatingthe
worst standoff between the two sides
since the Cold War. In response to the
sanctions, Putinbanned$9.5billionin
food imports from Western countries.
McDonalds, which says it has a
total of 440restaurants inthecountry,
is now caught in the crossfire, said
Sabina Mukhamedzhanova, a fund
manager at Promsvyaz Asset
Management in Moscow.
Prominentsymbol
ItsRussianretaliationtothesanctions
first it wasabanof foodimportsand
then McDonalds, she said. This is a
prominentsymbol oftheUS. Ithasalot
of restaurantsandthereforeisamean-
ingful target. I dont recall McDonalds
having consumer-safety problems of
such a scale in over more than two
decades of presenceinRussia.
McDonalds expansion into Russia
was spearheaded by George Cohon,
whoalsofoundedthechainsCanadian
business. Negotiations to open the
countrys first location began in 1976
whiletheColdWarwasstill underway.
Whentherestaurant openedin1990, a
year before the collapse of the Soviet
Union, itwasthebiggestMcDonaldsin
the world with 27 cash registers and
enoughseatingfor 700people.
For some Russians, this was her-
alded as the first step of opening the
country for business and for foreign
capital, Arbat Capitals Bushueva
said. These people may now see clo-
sure of McDonalds as a step in the
opposite direction.
Toosoon
Still, political winds shift and its too
early to determine the fate of
McDonalds in Russia, Russo said. In
fact, it wouldbebetterinthelongrunif
thecompanyis perceivedas apolitical
scapegoat ratherthanachainwitha
legitimatehealthproblem, hesaid.
As an operator of a business, you
dont want to be accused of having
products that are unsafe for con-
sumers, so thats clearly worse in this
case, Russo said.
BLOOMBERG
Kiev/Brussels, 30 August
Ukrainian President Petro
Poroshenko said hundreds of
foreign tanks are operating in
his country, pleading for help
from the European Union as it
moved to slap tougher sanc-
tions on the Kremlin.
Ukraine now is a subject of
foreignmilitaryaggressionand
terror, Poroshenko told
reporters in Brussels before a
summit later on Saturday with
leaders of the 28 EU member
states. Thousands of foreign
troops andhundreds of foreign
tanks arenowontheterritoryof
Ukraine.
EU leaders including
German Chancellor Angela
Merkel, British Prime Minister
David Cameron and French
President Francois Hollande
gather inBrusselstoelect anew
president and foreign-policy
chief of the28-nationbloc. They
will meet Poroshenko, whoheld
talks on Saturday with EU
PresidentHermanVanRompuy
and European Commission
President JoseBarroso.
The summit comes as
Ukraines armed forces are
retreating in some areas after
Nato said Russia has deployed
troopsandadvancedequipment
in Ukraine. The allegation was
dismissed by Russian Foreign
MinisterSergei Lavrov, whosaid
alliance satellite photos came
fromcomputergamesandhad
beenfaked.
We are in a very serious, I
would say dramatic, situation,
Barroso said at a news confer-
encewithPoroshenko. Wemay
see a situationthat has reached
apoint of noreturn.
Russiasanctions
French President Francois
Hollande said EU leaders will
agreetoimposemoresanctions
on Russia at their talks tonight.
Thesanctionswill certainly
be strengthened and it will be
the European Commissions
task to raise their level,
Hollande told reporters on
SaturdayinParis.
Stepscouldincludebanning
syndicated loans to targeted
Russian companies, tightening
restrictions on debt-market
financing and extending an
arms embargo to existing mili-
tarycontracts, whichwouldhalt
the sale of two French Mistral
helicopter carriers to Russia for
an estimated ^1.2 billion ($1.6
billion), according to four
Europeandiplomatsinvolvedin
the deliberations who request-
ed anonymity to discuss them.
Banning Russia from the
Brussels-based Society for
WorldwideInterbankFinancial
Telecommunication, or SWIFT,
the messaging system for most
international money transfers,
isnt under considerationat this
point either, two of the
European officials said. On
Friday, a British government
official had said the UK will
press EU leaders to consider
blocking Russian access to the
messaging system.
BarrososaidonSaturdaythat
more than ^1 billion in loans
could be released to Ukraine in
thecomingmonths. Thisispart
of the ^11-billion package
announcedearlier.
MARK SCOTT
London, 30 August
Thechief AngryBirdis leaving
the nest.
Rovio, the Finnish gaming
company behind the popular
Angry Birds franchise, said on
Friday that its chief executive,
Mikael Hed, would step down
by the end of the year as the
companystrugglesfinancially.
Roviohasstruggledrecent-
lyafterquicklyrisingtopromi-
nence in 2009 when Angry
Birds became a global phe-
nomenon. The company has
failed to respond to more
recent trends in gaming, and
theannouncementhighlighted
onceagaintheprecarioussitu-
ation of many mobile gaming
companies, whose fortunes
oftenrelyonasinglefranchise
or technology.
Gaming companies are
often dependent on a sole
blockbuster franchise like
Clash of Clans, a game pro-
duced by the Finnish compa-
ny Supercell. Others, includ-
ing Zynga, also have faced
difficulties in reducing their
reliance on social networks
like Facebook, which were
instrumental inpromotingthe
games when they were first
introduced.
But peoples online habits
change quickly and fran-
chises like Angry Birds can
lose their popularity as quick-
ly as they gained it. Analysts
question whether Rovio and
its rivals havethestayingpow-
er tomeet peoples fast-chang-
ing interests. And creating a
second big hit has often
proved elusive.
Most of these companies
have been unable to replicate
their past successes,saidPaul
Jackson, a gaming analyst at
the research technology com-
pany Ovum in London.
Mobile games are very tran-
sient. Theresnoguaranteethat
people will play new games
whentheyre released.
Hed co-founded Rovio
with his cousin Niklas Hed in
2003. The company is majori-
ty-owned by Mikael Heds
father, Kaj Hed, who remains
chairman of the company,
which is private.
Hed will be replaced as
Roviochief executivebyPekka
Rantala, who is not a member
of the family. Rantala, the
companys chief commercial
officer, previously spent 14
years working at the Finnish
telecommunications giant
Nokia.
2014TheNewYorkTimes News Service
MUMBAI | 31 AUGUST 2014 WORLD 7
. <
Brazil goes into recession for
first time in over five years
BLOOMBERG
Brasilia/Brasilia Newsroom, 30 August
B
razils first recession in
more than five years
fuelleda rallyinequities
asinvestorsbetPresidentDilma
Rousseff will fail toget re-elect-
ednext month.
The Ibovespa extended its
best monthsinceJanuary2012,
gaining 1.7 per cent to 61,288.15
today. The cost to protect the
nations debt securities against
non-payment for five years fell
today to the lowest level since
May 2013, according to data
compiledbyBloomberg.
Grossdomesticproduct shr-
ankby0.6per cent inthe April-
June period fromthe previous
three months, after contracting
arevised0.2per cent inthefirst
quarter, the national statistics
agency saidonFriday inRio de
Janeiro. It's the first time Latin
America'sbiggesteconomycon-
tractedfortwoconsecutivequar-
ters since the aftermath of the
global financial crisis in2008.
"ThisisthelastthingthatDil-
ma wouldhave wanted, today's
data is the worst-case outcome
for her," Neil Shearing, chief
emergingmarketseconomist at
Capital Economics Ltd, said by
phone from London. "This is
clearlygoingtoput pressure on
thecentral banktoloosenpolicy
inorder tosupport growth."
Rousseff has struggled to
revive the economy with tax
cuts, billions of dollars in cred-
it and higher social spending.
Withinflationhoveringaround
the ceiling of the target range,
consumer andbusiness confid-
ence has eroded in the run-up
to the first round vote on
October 5. Fridays GDP result
will give the two leading oppo-
sition candidates more fodder
to attack Rousseff on her eco-
nomic track record, said
JulianoFerreira, astrategyana-
lyst at Icap do Brasil Ctvm.
Betterarguments
"They'll have better arguments
to justify a change in the pres-
idency," Ferreirasaidbyphone.
"The chances of one of them
winning is increasing, and
that's being reflected in mar-
ket expectations."
Former Environment
Minister Marina Silva, who is
leading in polls, vows to grant
the central bank president a
fixed term as quickly as possi-
bleas part of her policytobring
inflationtotarget. Herplatform,
published on Friday in Sao
Paulo, saysthegovernment can
reduce expenditures in part by
relyingonconcessionsandpub-
lic-privatepartnerships.
Swap rates maturing in
January2017fell sixbasispoints,
or0.06percentagepoint, to11.20
per cent. The real rose 0.3 per
cent to2.2359per USdollar.
Investments contracted 5.3
per cent in the second quarter
from the previous three
months, accounting for the
bulk of the contraction in GDP,
the national statistics agency
said. Familyconsumption, sus-
tained by increases in wages,
rose 0.3 per cent.
Pushedinvestors
Shearing cut his 2014 growth
forecast to 0.2 per cent from1.5
per cent after Friday's report.
Price controls, currency
interventions and regulatory
changes in energy and other
industries have pushed
investorstothesidelines, Mauro
Rochlin, aprofessorof econom-
ics at the Getulio Vargas
Foundation, aBrazilianbusiness
school and research institute,
saidbyphone.
"Excess government med-
dlingintheeconomyhas creat-
edaverybadbusiness environ-
ment," hesaid.
The biggest impact of the
economic contraction on the
electoral race mayalreadyhave
taken place, said Fernando
Abrucio, a political scientist at
the Getulio Vargas Foundation
business school in Sao Paulo.
Today's data is two months old
and partially offset by near-
recordlowunemployment and
risingincome, hesaid.
"The data is already reflect-
ed in electoral polls," Abrucio
said. "It has more of an impact
on opinion makers than on the
electorate."
Rousseff'ssupport
Rousseff's support is near her
floor and could rise if she man-
ages to discredit Silva for lack-
ing executive experience, he
said, giving the incumbent a
40 per cent to 50 per cent
chance of winning against 50
per cent to60per cent for Silva.
Standard & Poor's in March
lowereditsdebt ratingonBrazil
by one level to BBB-, a step
abovejunk, onslower econom-
ic growth and what it said were
deteriorating fiscal accounts.
The public sector posted a 32.7
billion-real nominal budget
deficit in July, the largest since
December 2008, the central
bank said in a report today.
Finance Minister Guido
Mantega said on Friday that
growth would fall short of the
government's 1.8 per cent tar-
get and that it would be "diffi-
cult" toreachits primarybudg-
et surplus target of 1.9 per cent
of GDP. On Thursday he said
the economy will grow 3 per
cent next year as the govern-
ment tightens its budget,
allowing the central bank to
easethe"severe" monetarypol-
icy it implemented to slow
inflation.
Taketime
Jose Francisco de Lima
Goncalves, chief economist at
Banco Fator SA, said the econ-
omy won't grow more than 1
percent next year.
It will take time to see an
economic recovery, Lima
Goncalves said in a phone
interview from Sao Paulo. "The
infrastructure bottlenecks
won't disappear. The con-
sumptioncycleis runningout."
The central bank on July 16
kept the benchmark interest
rate unchanged at 11 per cent
for the second straight meet-
ing after lifting it by 375 basis
points in the year through
April. Brazil has the highest
benchmark borrowing costs
among rate-setting nations in
the Group of 20.
Policy makers signaled
plans toholdthekeyrateat the
highest level in more than two
yearsasinflationpersistsabove
the mid-point of its target even
as demand eases.
Rousseff's support fell
before the elections as other
candidates attack her econom-
ic policies, according to two
polls released this week.
Silva would win 45 per cent
of voters' support inanOctober
26runoff against Rousseff, who
would garner 36 per cent,
accordingtoanIbopepoll pub-
lished on August 26. The sur-
vey questioned 2,506 people
onAugust 23-25andhadamar-
gin of error of plus or minus
two percentage points.
Silva has 43.7 per cent sup-
port in the second round, 5.9
percentage points more than
Rousseff in an August 21-24
MDA survey published August
27, which has a margin of error
of plus or minus 2.2 percent-
age points.
Rousseff doesn't have the
votes needed to avert a runoff,
according to both polls.
Poroshenko says hundreds of foreign tanks in eastern Ukraine
CEO of Rovio,
maker of
Angry Birds,
to step down
UkrainianPresident PetroPoroshenko(left) withEuropean
Council President HermanVanRompuyduringanEUsummit
inBrussels onSaturday PHOTO: AP/PTI
BLOOMBERG
Los Angeles, 30 August
TeslaMotorsIncrosetoarecord
after the electric-car maker led
byElonMuskreachedanagree-
ment tocreateavehicle-charg-
ing network in China with the
country's second-largest
mobile-phone company.
Thesharesadvanced2.2per
cent to $269.70 in New York,
the highest closing price since
the Palo Alto, California-based
companys June 2010 initial
public offering. The stock has
tradedat or near all-timehighs
through most of this month.
President Dilma Rousseffs efforts to spark growth throughtax cuts, billions of dollars in credit and
higher social spending have failed to gain traction as estimates of expansion continue to tumble
| Inflation is hovering
around the upper limit
of the target range
| Consumer and business
confidence eroded in the
run-up to the first round
vote on Octobe 5
| Investments contracted
5.3% in the second
quarter from the
previous three months,
accounting for the bulk
of the contraction in GDP
| Price controls, currency
interventions and
regulatory changes in
the energy and other
industries have pushed
investors to the sidelines
| Excess government
meddling in the
economy has created a
very bad business
environment
| Standard & Poors in
March lowered its debt
rating on Brazil by one
level to BBB-, a step
above junk
| Finance Minister Guido
Mantega says growth
would fall short of the
governments 1.8% target
| GDP shrank by 0.6% in
the April-June period
from the previous three
months, after
contracting a revised
0.2% in the first quarter
TESTING
TIMES
Brazils economy
slipped into recession
for the first time in
more than five years as
investments contracted
on lower confidence
before the October
presidential election.
Here are some
challenges the
economyis facing
Brazils President DilmaRousseff speaks duringameetingin
BrasiliaonThursday PHOTO: REUTERS
Mikael Hed(pictured) is
steppingdownafter the
companyfailedtorespondto
recent trends ingaming.
PHOTO: BLOOMBERG
Tesla jumps to record after China accord
Banning Russia from SWIFT not under consideration; ^1 bn in loans could be released to Ukraine in coming months
PRESS TRUST OF INDIA
Islamabad, 30 August
Amid Pakistan Armys medi-
ation efforts, protesters have
stepped up pressure on the
embattled government with
cleric Tahir-ul-Qadri setting
yet another deadline of 24
hours for Prime Minister
Nawaz Sharif to quit.
In a late night develop-
ment, Qadriscampwasvisited
by a delegation of cricketer-
turned-politician Imran
Khans Pakistan Tehreek-i-
Insaf (PTI), led by Vice-
Chairman Shah Mehmood
Qureshi, who convinced the
PakistanAwami Tehreek(PAT)
chief to delay his next move.
Followingthemeeting, the
first direct contact between
the two groups since they
together started the march on
August 14, Qadri set a24-hour
deadline for the premier to
step down.
Qadri has set a number of
deadlines since camping out-
side the Parliament house
about two weeks ago.
After their meeting,
Qureshi also addressed the
PAT crowd and reiterated his
party's request to postpone
further action, which the pro-
testers did not agree to. At
this, Qadri came out of his
container and asked his fol-
lowers to give their assent to
the PTI proposal.
He said PAT and PTI had a
number of views in common
and shared the same struggle,
cautioning supporters that
the government intended to
createasplit betweenthetwo.
Meanwhile, in his late
night address, Khan
announced that his party
would expand their sit-in to
rallies in Lahore, Karachi,
Faisalabad and Multan. Qadri
asked his supporters to join
Khan's protests.
Speaking to his supporters
from atop his container out-
side the Parliament house,
Khan said he would
announce his next step on
Sunday.
Khan reiterated that the
proposedjudicial commission
toinvestigateelectoral rigging
in the 2013 polls would be
unable to probe the matter
fully if Sharif remained the
Prime Minister.
The developments came
after direct talks between the
government and protesters
failed to break the deadlock
on Friday.
The army has been active
behind the scenes to broker a
deal after Qadri andKhanmet
army chief General Raheel
Sharif on Thursday night,
sources said.
TheSharif-ledgovernment
has announced to accept all
electoral reform-related
demands but has rejected the
demand asking for the Prime
Minister's resignation.
Hours after General
Sharif's mediation, the pro-
testers and the government
were trading charges on
Friday on who was responsi-
ble for army's mediation.
Prime Minister Sharif told
the National Assembly on
FridaythatneitherhadIasked
army nor the armed forces
sought a role in the present
political crisis. Sharif sought
to scotchmedia reports that it
was he who had requested
thearmytocometohisrescue,
saying that he approved the
military chief's meeting with
thetwooppositionleadersafter
they had requested it. Both
Qadri and Khan contested
Sharif's statement.
Contradicting Sharif's
statement, military
spokesman Major General
Asim Bajwa tweeted, COAS
(Chief of Army Staff) was
askedbytheGovt toplayfacil-
itative role for resolution of
current impasse, in yester-
days meeting, at #PM
House. In a bid to save face,
Interior Minister Chaudhry
Nisar claimed that it was the
Prime Minister who had
approved army's role.
Pakistan cleric Qadri
issues 24-hour deadline
for Sharif to resign
Tahir-ul-Qadri, Sufi cleric andleader of the PakistanAwami
Tehreek, gestures as he addresses his supporters infront of
the Parliament house buildingduringthe RevolutionMarch
inIslamabadonFriday PHOTO: REUTERS
McDonalds faces biggest test in Russia since end of Soviet era
Awomantakes pictures of anannouncement onthe door of aclosed
McDonalds restaurant inMoscowonAugust 21 PHOTO: REUTERS
Citing violations of
sanitary rules, Russian
regulators have
ordered 12 of the
chains restaurants to
temporarily close